Activision stems Warcraft bleeding, eyes holiday

SAN FRANCISCO | By Malathi Nayak and Liana B. Baker

SAN FRANCISCO Activision Blizzard Inc raised its earnings outlook on Wednesday and showed investors it was able to bring an end to the exodus of subscribers from its largest Internet game, "World of Warcraft," that had hurt the company in recent quarters.

Investors closely watch subscriber numbers for "World of Warcraft" because the franchise is the company's most profitable business and generates a steady stream of recurring revenue from millions of users who pay $15 a month to play it.

The game, which is 7 years old, has seen its subscriber numbers steadily decline in recent quarters. Activision managed to keep its first quarter "World of Warcraft" subscribers static at 10.2 million compared with last quarter. But it lost subscribers compared with a year ago, when it had 11.4 million players.

"Maintaining our subscribers level puts us in a great position," said Mike Morhaime, the chief executive of the company's Blizzard unit on the conference call.

The next expansion pack of the game, called "Mists of Pandaria," is being tested now by fans and should generate renewed interest in the franchise in coming quarters, he said.

National Alliance Capital Markets Mike Hickey said he was reassured on Wednesday that the company can hold its Warcraft subscribers steady and has successfully fended off its biggest rival, Electronic Arts, which came out with an Internet game of its own in December based on the Star Wars movies.

"To have a stable subscriber base given the nature of the markets that we're in and the competitive threats is a real testament to the strength of the franchise," Hickey said.

On Monday, EA said it lost 400,000 subscribers of "Star Wars: The Old Republic" in the fourth quarter, dealing a blow to its efforts to rely on the new game for growth and sending the game maker's shares down as much as 10 percent.

BY THE NUMBERS

Activision Blizzard cut 600 jobs in February. Activision, which employed 7,300 people at the end of 2011, acquired its Blizzard unit from Vivendi in 2008.

The company said that game development schedules will not be affected by the job cuts and it was on track to launch its upcoming game, "Diablo III," on May 15.

Heading into the holiday season, the company's 2012 pipeline includes Call of Duty: Black Ops II, which is scheduled for a November 13 launch and a free, microtransaction version of Call of Duty for players in China.

Activision Blizzard's "Call of Duty: Modern Warfare 3" was its biggest holiday title last year and saw record sales of over 400 million on its first day. The company said the Call of Duty franchise had about 40 million monthly active users as of March 31, 2012.

The game maker now expects annual earnings per share of 95 cents on revenue of $4.53 billion, which is below Wall Street's expectations of 97 cents per share on revenue of $4.57 billion. For the second quarter, it expects EPS of 10 cents per share on revenue of $805 million, which misses analyst estimates of 16 cents per share on revenue of $822.16 million.

The company posted total revenue of $1.17 billion compared with $1.5 billion a year ago for the three months ended March 31. Its net income dropped to $384 million, or 33 cents per share, compared with $503 million, or 42 cents per share a year ago.

Adjusted for the deferral of digital revenue and other items, the company said net income fell 57 percent to $67 million, or 6 cents per share. Wall Street analysts were expecting 4 cents per share on average, according to Thomson Reuters I/B/E/S.

The company's shares were flat after rising as much as 1.6 percent in the after-hours trading session.

(Reporting By Liana Baker in New York and Malathi Nayak in San Francisco; editing by Andre Grenon and M.D. Golan)